gasworld Business Intelligence provides you with the latest analysis of Taiyo Nippon Sanso’s Q4 2016 earnings report.

Headlines

  • Taiyo Nippon Sanso Corporation (TNSC) adopted the IFRS approach for first time from Q1 FY2016/7, with indications of the impact of restatement on FY2015/6. Revised historic data has been used where available.
  • Total reported sales in Q4 were again reported to be down year-year (YoY) at ¥147bn ($1.35Bn) –although a decline of 0.5% was an improvement on the previous two quarters. Excluding currency, corporate sales were broadly similar to the previous year.
  • First full quarter of consolidation of the US assets divested by Air Liquide as part of its acquisition of Airgas.
  • Total operating income was up 6.5% at ¥15bn ($138m) and similar to the trend rate of profit recovery of the last two years.
Corporate Performance
  • Total Corporate Sales
  • Total Operating Income
,Total Corporate Sales,Total Operating Income 2011 Q1,5%,15% 2011 Q2,-1%,-18% 2011 Q3,-1%,-7% 2011 Q4,-4%,-20% 2012 Q1,0%,-5% 2012 Q2,-3%,-19% 2012 Q3,-2%,-22% 2012 Q4,1%,-5% 2013 Q1,-3%,-31% 2013 Q2,10%,19% 2013 Q3,9%,10% 2013 Q4,14%,21% 2014 Q1,14%,59% 2014 Q2,7%,15% 2014 Q3,8%,13% 2014 Q4,5%,22% 2015 Q1,7%,0% 2015 Q2,8%,17% 2015 Q3,5%,14% 2015 Q4,6%,26% 2016 Q1,4%,2% 2016 Q2,-5%,-7% 2016 Q3,-6%,22% 2016 Q4,0%,6%
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  • Underlying corporate operating margin on the new IFRS basis for Q4 was again over 10%, remaining at a new peak for the last five years – however it remains significantly below the average of other major gas companies.
  • Total capital employed appears to have risen again sequentially and to be up 6% YoY.
  • ROCE is reported to have remained above 8.5%.
  • The latest FY2016/7 forecast shows lower group sales YoY by 2%, although it is up on the previous forecast with operating income up 6% on the previous forecast, and 12% YoY. Reported ROE and ROC both raised to 10% and 8.6%, respectively.
Corporate Operating Margin
  • Total Operating Margin
  • Operating Margin (IFRS basis)
,Total Operating Margin,Operating Margin (IFRS basis) 2011 Q1,7%,0% 2011 Q2,7%,0% 2011 Q3,7%,0% 2011 Q4,6%,0% 2012 Q1,7%,0% 2012 Q2,6%,0% 2012 Q3,5%,0% 2012 Q4,6%,0% 2013 Q1,5%,0% 2013 Q2,6%,0% 2013 Q3,6%,0% 2013 Q4,6%,0% 2014 Q1,6%,0% 2014 Q2,6%,0% 2014 Q3,6%,0% 2014 Q4,7%,0% 2015 Q1,6%,0% 2015 Q2,7%,9% 2015 Q3,6%,8% 2015 Q4,8%,10% 2016 Q1,6%,7% 2016 Q2,0%,9% 2016 Q3,0%,10% 2016 Q4,0%,10%
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  • Gases sales (according to the gasworld Business Intelligence definition) were again down YoY in reported terms in Q4, albeit with a smaller decline than recent quarters.
  • The most significant factor was the substantial negative currency impact which nearly offset the positive, and increased, impact of the acquisition of the US business acquired from Air Liquide from September – as in previous quarters a significant currency impact was apparent due to both Yen and the Dollar, and to other Asia currencies.
  • Underlying gases growth turned substantially negative again, with both volumes and pricing estimated to have had a negative impact in Q4.
Underlying Growth Drivers
  • Total Underling Growth
  • Volume
  • Price
,Total Underling Growth,Volume,Price 2011 Q1,9.5%,8.9%,0.6% 2011 Q2,7.2%,6.6%,0.6% 2011 Q3,7.8%,7.2%,0.6% 2011 Q4,2.8%,2.2%,0.6% 2012 Q1,2.0%,1.1%,0.9% 2012 Q2,0.9%,-0.2%,1.1% 2012 Q3,1.7%,1.1%,0.6% 2012 Q4,3.0%,2.5%,0.5% 2013 Q1,0.6%,0.1%,0.5% 2013 Q2,0.7%,0.5%,0.2% 2013 Q3,1.0%,0.7%,0.3% 2013 Q4,-1.9%,-2.0%,0.1% 2014 Q1,1.7%,0.7%,0.9% 2014 Q2,3.4%,2.3%,1.1% 2014 Q3,1.7%,0.6%,1.1% 2014 Q4,4.8%,3.5%,1.3% 2015 Q1,4.0%,4.0%,0.0% 2015 Q2,1.7%,1.6%,0.1% 2015 Q3,3.0%,2.3%,0.7% 2015 Q4,1.4%,0.9%,0.5% 2016 Q1,1.8%,1.1%,0.7% 2016 Q2,2.6%,2.4%,0.2% 2016 Q3,-0.8%,-0.8%,0.0% 2016 Q4,1.9%,1.9%,0.0%
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TNSC Business Performance

  • Industrial gases (as defined by gasworld Business Intelligence definition) account for around 90% of total sales, with nearly 80% of gases sales in industrial gases, and 20% electronics related.
  • Total Q4 gas sales rose sequentially to around ¥134bn ($1.23Bn), and were up marginally YoY.
  • Industrial gases sales rose around 1% YoY in Q4, representing its strongest growth in a year.
  • Electronics related business again showed a slower decline than in the previous two quarters.
  • The small energy business continues to showed a significant YoY decline in sales due to lower LPG prices.
Sales Growth by Business
  • Industrial Gases
  • Electronics Related
  • Energy
,Industrial Gases,Electronics Related,Energy 2011 Q1,7%,2%,13% 2011 Q2,3%,-11%,0% 2011 Q3,-1%,-8%,14% 2011 Q4,-1%,-13%,2% 2012 Q1,2%,-5%,0% 2012 Q2,0%,-18%,10% 2012 Q3,6%,-18%,-15% 2012 Q4,3%,-11%,14% 2013 Q1,2%,-18%,2% 2013 Q2,17%,10%,-6% 2013 Q3,16%,1%,24% 2013 Q4,23%,5%,9% 2014 Q1,28%,-7%,20% 2014 Q2,8%,4%,6% 2014 Q3,11%,1%,2% 2014 Q4,8%,2%,-12% 2015 Q1,11%,14%,-31% 2015 Q2,11%,4%,-24% 2015 Q3,3%,16%,-27% 2015 Q4,10%,20%,-25% 2016 Q1,-3%,15%,-19% 2016 Q2,-5%,-4%,-21% 2016 Q3,-6%,-2%,-19% 2016 Q4,1%,-2%,-7%
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  • Around half of reported industrial gas sales are represented by bulk and on-sites, with one third in packaged gases. Third party plant & equipment sales are also included in this business by TNSC, and account for around 10% of sales, while over 5% of sales are now represented by the inclusion of medical business under gases.
  • All businesses showed a better performance in reported sales development – although some remained negative.
  • Performance of overall gases continued to be most significantly driven by packaged gases sales growth, but this was offset in Q4 by strong growth in bulk and on-sites, which was in turn substantially driven by the Air Liquide-Airgas acquisition.
  • Hard goods were again down over 10% YoY, while the decline in cylinder gases eased to be down 6%. A 12% rise in reported bulk sales in Q4 was partly offset by a 2% decline in on-sites
  • Plant & equipment sales were unchanged YoY, while medical sales slipped back into negative territory.

 

Gases Sales Growth by Business
  • Total Gases
  • Gases ex P&E
  • Bulk & Onsites
  • Packaged
,Total Gases,Gases ex P&E,Bulk & Onsites,Packaged 2013 Q2,10.8%,9.8%,4.6%,18.3% 2013 Q3,10.5%,13.2%,8.4%,21.1% 2013 Q4,15.5%,15.3%,12.6%,19.6% 2014 Q1,17.9%,17.1%,13.1%,23.2% 2014 Q2,7.7%,9.6%,8.7%,11.1% 2014 Q3,9.9%,10.5%,14.7%,4.2% 2014 Q4,7.7%,9.9%,10.3%,9.3% 2015 Q1,11.4%,11.4%,7.3%,17.0% 2015 Q2,11.3%,10.8%,7.5%,15.6% 2015 Q3,3.2%,4.5%,2.1%,8.6% 2015 Q4,10.3%,10.0%,9.6%,10.6% 2016 Q1,-2.0%,-5.5%,2.3%,-15.4% 2016 Q2,-4.5%,-5.8%,-0.8%,-13.0% 2016 Q3,-7.0%,-9.5%,-7.3%,-12.8% 2016 Q4,1.6%,1.8%,8.8%,-8.7%
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  • Japan now represents just over half of TNSC’s bulk & on-sites sales, with North America over 30% following acquisition of the Air Liquide-Airgas business, which is primarily bulk & on-sites.
  • Over 80% of this business is in bulk with under 20% in on-sites.
  • As a result of the acquisition reported bulk & on-sites growth in North America was around 45% in Q4.
  • Sales in both Japan and other Asian markets were below prior year in both bulk and on-sites businesses.
  • Japanese bulk was down by 1.5% and on-sites by around -2.5%.
  • Volumes and sales to steel and metals industries were broadly weaker than other major end markets, while engineering and other manufacturing out-performed the other segments.
Bulk and onsites sales growth by geography
% change YOY
  • Japan
  • North America
  • Other Asia
,Japan,North America,Other Asia 2014 Q2,4%,36%,0% 2014 Q3,3%,72%,20% 2014 Q4,2%,74%,-24% 2015 Q1,-1%,44%,14% 2015 Q2,-6%,44%,16% 2015 Q3,-2%,5%,50% 2015 Q4,-7%,19%,157% 2016 Q1,-7%,19%,27% 2016 Q2,-5%,-6%,45% 2016 Q3,-5%,-18%,7% 2016 Q4,-2%,49%,-13%
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  • North America is TNSC’s largest packaged gases business accounting for 60% of packaged sales, with 25% in Japan.
  • Packaged gases business is split half and half between gases and equipment.
  • North America sales continued to show a significant decline in Q4 – partly driven by negative currency conversion impact YoY - with both gases and hard goods sharply down.
  • Japan again showed weak performance in this business – with modest growth of 3% in gases, but offset by a 4% decline in hard goods.
  • Further sharp fall in (modest) packaged gas sales in other Asian markets in Q4, with both gases and equipment both significantly down.
Packaged gases sales growth by geography
% change YOY
  • Japan
  • North America
  • Other Asia
,Japan,North America,Other Asia 2014 Q2,7%,12%,18% 2014 Q3,9%,1%,10% 2014 Q4,8%,9%,14% 2015 Q1,-2%,24%,30% 2015 Q2,10%,19%,7% 2015 Q3,0%,16%,-13% 2015 Q4,6%,11%,19% 2016 Q1,0%,-22%,-14% 2016 Q2,-5%,-16%,-13% 2016 Q3,-6%,-16%,-14% 2016 Q4,-2%,-7%,-37%
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  • Electronic gases represent three quarters of electronics related sales, with one quarter in equipment.
  • Electronic gases recovered to show a flat growth performance YoY in Q4, although this was offset by a fall in electronic equipment sales, resuming the weaker trend which has witnessed since mid-2015.
Electronics related sales growth by business
% change YOY
  • Total Electronics Related
  • Electronic Gases
  • Electronic Equipment
,Total Electronics Related,Electronic Gases,Electronic Equipment 2013 Q2,9%,0%,0% 2013 Q3,1%,3%,-2% 2013 Q4,5%,5%,7% 2014 Q1,-7%,-5%,-9% 2014 Q2,4%,10%,-14% 2014 Q3,1%,7%,-15% 2014 Q4,2%,4%,-7% 2015 Q1,14%,12%,19% 2015 Q2,4%,3%,8% 2015 Q3,16%,13%,28% 2015 Q4,20%,17%,31% 2016 Q1,15%,15%,15% 2016 Q2,-4%,-5%,0% 2016 Q3,-2%,-7%,14% 2016 Q4,-2%,0%,-6%
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  • Around two thirds of electronic gas sales are in Japan, with over a quarter in the rest of Asia.
  • Japan electronic gas sales again showed solid positive growth in Q4 after being negative through 2015 and into early 2016.
  • However, sales in other Asian markets showed a YoY decline, while the small North American business also remained in negative territory for the third successive quarter – currency had a significant negative impact in both regions.
  • Electronic equipment sales were sharply down in the largest region, Japan, at -20% YoY after a year of strong growth. However, there was further strong growth in other Asia markets.
Electronics gases sales growth by geography
  • Japan
  • North America
  • Other Asia
,Japan,North America,Other Asia 2014 Q2,3%,12%,30% 2014 Q3,0%,-17%,35% 2014 Q4,-1%,3%,22% 2015 Q1,6%,-1%,33% 2015 Q2,-5%,21%,17% 2015 Q3,-7%,233%,26% 2015 Q4,-7%,98%,56% 2016 Q1,-7%,139%,39% 2016 Q2,-1%,-8%,-11% 2016 Q3,10%,-12%,-28% 2016 Q4,10%,-23%,-8%
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  • Around two thirds of electronic gas sales are in Japan, with over a quarter in the rest of Asia.
  • Japan electronic gas sales again showed solid positive growth in Q4 after being negative through 2015 and into early 2016.
  • However, sales in other Asian markets showed a YoY decline, while the small North American business also remained in negative territory for the third successive quarter – currency had a significant negative impact in both regions.
  • Electronic equipment sales were sharply down in the largest region, Japan, at -20% YoY after a year of strong growth. However, there was further strong growth in other Asia markets.
Sales growth by geography
% Change YoY
  • Japan
  • N.America
  • Other
  • N.America in $
,Japan,N.America,Other,N.America in $ 2011 Q1,4%,9%,20%,0% 2011 Q2,-2%,6%,2%,19% 2011 Q3,-4%,6%,3%,16% 2011 Q4,-5%,2%,-7%,9% 2012 Q1,1%,-2%,-5%,1% 2012 Q2,-5%,-4%,21%,-2% 2012 Q3,-5%,-3%,33%,-3% 2012 Q4,-1%,-1%,46%,-6% 2013 Q1,-13%,7%,114%,-8% 2013 Q2,1%,29%,49%,5% 2013 Q3,2%,24%,39%,-2% 2013 Q4,6%,29%,51%,4% 2014 Q1,14%,29%,-10%,16% 2014 Q2,3%,18%,14%,14% 2014 Q3,3%,17%,19%,12% 2014 Q4,0%,24%,-1%,9% 2015 Q1,-2%,28%,24%,10% 2015 Q2,-3%,26%,21%,5% 2015 Q3,-6%,22%,19%,3% 2015 Q4,-3%,18%,62%,11% 2016 Q1,-3%,-6%,21%,-3% 2016 Q2,-3%,-15%,6%,-7% 2016 Q3,-1%,-16%,-5%,3% 2016 Q4,-4%,11%,-6%,17%
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  • Q4 gases sales in Japan were reported at ¥72Bn ($660m).
  • Over half of gas sales in Japan are accounted for by bulk & on-sites, with less than 15% in packaged gases, 3% in medical, 20% from electronic gases and 7% in electronic equipment.
  • Over 10% of sales are also typically reported from third party sales of plant and equipment.
  • Bulk & on-sites growth remained negative again in Q4, although at -2% this represented the smallest decline in two years – with bulk down slightly less than on-sites.
  • Packaged gases sales were lower again in Q4 at -2%, although a 3% gain in cylinder gases was more than offset by a 4% decline in the larger hard goods business.
  • Total electronics business was marginally down YoY in Q4, with strong growth in gases (10%) offset by a sharp fall in equipment sales (-20%).
  • Medical gases were again below prior year. The energy business (LPG) in Japan which is reported in the gases segment continued to show a sharp sales decline YoY, as energy prices fell.
Japan gases growth by segment
% Change YoY
  • Bulk&Onsites
  • Packaged Gases
  • Total Electronics Related
  • Energy
  • Medical
,Bulk&Onsites,Packaged Gases,Total Electronics Related,Energy,Medical 2014 Q2,4%,7%,-4%,6%,21% 2014 Q3,3%,9%,-6%,2%,23% 2014 Q4,2%,8%,-2%,-12%,5% 2015 Q1,-1%,-2%,12%,-31%,2% 2015 Q2,-6%,10%,-5%,-24%,5% 2015 Q3,-2%,0%,1%,-27%,4% 2015 Q4,-7%,6%,1%,-25%,10% 2016 Q1,-7%,0%,0%,-19%,-12% 2016 Q2,-5%,-5%,1%,-21%,-7% 2016 Q3,-5%,-6%,10%,-19%,6% 2016 Q4,-2%,-2%,-1%,-19%,-13%
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  • Q4 gas sales in North America were over $370m (but only ¥40bn due to currency impact).
  • Nearly half of gas sales in North America are accounted for by bulk & on-sites following acquisition of the Air Liquide-Airgas business - with half accounted for by packaged gases and less than 4% in electronics related.
  • Underlying YoY performance, excluding acquisition impact, indicates both packaged gas sales and bulk & on-sites were little changed in dollar terms in Q4. Cylinder gases performed better than hard goods sales.
  • Total electronics business fell in dollar terms for the first time since early 2015, with gases down sharply YoY.
North America growth by segment
% Change YoY $ terms
  • Bulk&Onsites
  • Packaged Gases
  • Electronics Related
,Bulk&Onsites,Packaged Gases,Electronics Related 2014 Q2,31%,8%,10% 2014 Q3,65%,-3%,-20% 2014 Q4,52%,-4%,-21% 2015 Q1,24%,7%,-17% 2015 Q2,21%,0%,-3% 2015 Q3,-11%,-2%,143% 2015 Q4,12%,5%,85% 2016 Q1,23%,-19%,99% 2016 Q2,6%,-5%,1% 2016 Q3,-2%,1%,1% 2016 Q4,66%,4%,-11%
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  • Japan gases accounts for over half of reported operating income (on IFRS basis). North America gases now represents over 20% of income, and Asia around 10%. Nearly a fifth of corporate income comes from non-gas businesses.
  • Japan gas business appears to have remained close to its recent peak margin and still represents the highest return gas business for TNSC.
  • North America and Asia both improved operating margins further to around 8% in Q4 under the new IFRS approach.
  • However, these margins remain significantly below peer Tier 1 companies.
  • The margin of the non-gas business was substantially higher under the newly adopted reporting approach, and now appears to be the highest margin business in the group.
Operating margin by geography
%
  • Japan
  • North America
,Japan,North America 2011 Q1,7.8%,5.2% 2011 Q2,7.9%,3.9% 2011 Q3,8.1%,3.8% 2011 Q4,6.9%,4.0% 2012 Q1,7.2%,4.1% 2012 Q2,6.7%,2.3% 2012 Q3,6.7%,2.2% 2012 Q4,6.7%,3.2% 2013 Q1,6.2%,1.2% 2013 Q2,7.1%,4.1% 2013 Q3,5.7%,4.0% 2013 Q4,7.2%,2.4% 2014 Q1,7.3%,6.9% 2014 Q2,6.8%,4.4% 2014 Q3,6.9%,4.2% 2014 Q4,8.0%,2.7% 2015 Q1,7.3%,6.3% 2015 Q2,7.2%,5.4% 2015 Q3,7.7%,3.4% 2015 Q4,9.8%,2.8% 2016 Q1,8.4%,0.3% 2016 Q2,8.2%,6.3% 2016 Q3,10.4%,8.3% 2016 Q4,10.1%,8.3%
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  • Capex in Q4 remained little changed from the previous quarter both in absolute terms and relative to sales.
  • Capex spend at under $90m appears to be below the average of recent years.
  • Relative to sales capex remains significantly below 10% and below the average for gas majors, which has slipped from its recent highs.
  • FY2017 capex expected to be flat YoY.

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